Transfer Pricing Compliance Alerts Guidance

This article serves as a guide on IRS transfer pricing compliance alerts, particularly focusing on the implications for US subsidiaries of large foreign corporations. It outlines the IRS's increased compliance efforts, including the Large Foreign-Owned Corporations Transfer Pricing Initiative, which involves sending compliance alerts to companies reporting losses or low margins. The article defines what a compliance alert is, detailing its purpose and the criteria for taxpayers who receive it. It explains the options available to taxpayers upon receiving an alert, including the choice to take no action, amend their tax return, or seek an advance pricing agreement (APA). The potential consequences of each response are discussed, including transfer pricing adjustments, penalties, and the risk of double taxation. The article concludes by emphasizing the importance of evaluating transfer pricing policies in light of the compliance alerts to mitigate exposure to penalties.